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A new narrative for gasDr Thierry Bros

Argus – Paris – 25 September 2018

Senior Research Fellow

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EU sentiment changed vis-à-vis gas

• Gas demand growing since 2014

• Gas infrastructure is the batteries of the new energy system

• Complete electrification will not work

• Gas is not just a bridge fuel for renewables, but it has its own future in Europe

• EU hasn’t stopped already all public funding for new interconnections

2Source: Florence School of Regulation

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“We need a new narrative for gas”

• If the 2006-2014 efficiency boost can’t be repeated, coal & oil will have to leave EU energy mix much faster…

• Europe could profit from becoming the worldwide energy storage provider Change Directive 2009/119/EC designed at a time when oil was more

relevant than today, the energy transition hadn’t really started, and energy markets were not fully functional

This Directive is neither fuel- nor technology-neutral

• Additional data: Foreign dependency

LNG tightness

Spare capacity3

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2006-2014 efficiency boost

If this efficiency boost can’t be repeated, coal & oil will have to leave EU energy mix much faster…

1995

2006

2014

Source: BP Statistical Review, RichesFlores Research, Macrobond, thierrybros.com

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CO2 linked more to total demand than mix

CO2 vs Primary energy CO2 per unit of energy used

(350)

(300)

(250)

(200)

(150)

(100)

(50)

0

50

100

150

2000 2002 2004 2006 2008 2010 2012 2014 2016

EU-28 CO2 emissions YoY change (Mt CO2)

EU-28 primary energy consumption YoY change (Mtoe)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2000 2002 2004 2006 2008 2010 2012 2014 2016

Mt

CO

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Mto

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EU UK FR DE IT DK

5Source: BP Statistical Review, thierrybros.com

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LNG supply growth

•32% of trade and growing

• Impacts also storage

•More buyers & sellers

• Increases global liquidity

•Even if more expensive than pipe, a low cost LNG project can thrive

•Customers are always better off

•Suppliers have to select low cost projects to be profitable

Competition Optionality

Security of Supply

Diversification

6

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EU LNG use is already changing

7

Source: Cedigaz

What matters is not the net but the gross load regas factor

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Europe should use its storage differently

Source: thierrybros.com, BP Statistical Review – June 2018, Cedigaz (end 2016 data)

5%

7%

9%

11%

13%

15%

17%

19%

21%

23%

25%

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200

300

400

500

600

700

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NorthAmerica

EU-28 Russia China

bcm

Production Demand

Storage Storage/Demand (%)

15%

17%

19%

21%

23%

25%

27%

29%

31%

33%

35%

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US EU-27 &Ukraine

Russia

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Production Demand

Storage Storage/Demand (%)

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EU & Ukraine gas storage

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EU used57%

EU unused20%

Ukraine used9%

Ukraine that could be used8%

Ukraine unused6%

Source: GIE, thierrybros.com

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Brexit’s impact on foreign dependency

Source: BP Statistical Review June 2018, thierrybros.com (Norway is foreign for all) 10

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

EU-28 UK EU-27

Foreign dependency pre and post-Brexit

2014 2015 2016 2017

Can this impact

perceived SoS?

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Gazprom exports and Europe dependency

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Source: Gazprom Export, BP Statistical Review, thierrybros.com

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Gazprom's exports (bcm) Gazprom dependency (%)

EU-28 dependency (%) EU-27 dependency (%)

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Fictional 2021 scenarioNord Stream 2 full (55 bcm) & 50 bcm transit via Ukraine

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Gazprom's exports with NS2 (bcm) Gazprom dependency (%) EU-27 dependency (%)

Source: Gazprom Export, BP Statistical Review, thierrybros.com

No demand growth - Gazprom pipe replaces Groningen cut (-12 bcm), Algerian pipe exports drop (-6 bcm) and displaces other pipe and LNG (-10 bcm)

Average: 41%

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Month-Ahead Gas Prices

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Source: Argus Media, thierrybros.com

0

2

4

6

8

10

12

Jun 16 Sep 16 Dec 16 Mar 17 Jun 17 Sep 17 Dec 17 Mar 18 Jun 18 Sep 18

$/M

btu

All contracts roll on 16th - month 1 (1-15) month 2 (16-31)

LNG tightness (AGC FOB - HH) Anea TTF HH LNG FID

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Major projects to come on-line(until 2021, on a FID basis)

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Source: thierrybros.comLNG only for North America & Australia

No upstream project in Trinidad and Tobago & Peru (LNG producers)

Russia25%

US21%

Egypt15%

Australia9%

Iran6%

Azerbaijan5%

Israel4%

Others15%

US52%

Australia23%

Russia18%

Others7%

LNG capacity

Russia30%

Egypt24%

Iran10%

Azerbaijan9%

Israel6%

Oman5%

Others16%

Pipe gas capacity

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Gas spare production capacity

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Source: thierrybros.com

Assuming transit via Ukraine unaffected, Groningen cap at 12 bcm/y & no major unconventional gas production in China

0%

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Spare capacity (bcm) Spare capacity in % of world consumption

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Boom & Bust

Short

• Increase producer’s rent 2008, 2011-2014, 2018

• Very good

Med.

• Demand destruction 2007-2014

• Impact on export volumes?

Long

• New suppliers entering the market

• New competitors from 2016

After

• Lower prices & higher demand 2015-2017

• Delayed FID

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Thank you

17

thierry.bros@oxfordenergy.org

Twitter: @thierry_bros